What is it and what is it for?

Season 2008

The 941

people

941
Employers Quarterly tax return

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941
Page 2

Employers Quarterly tax return

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Definitions and Terminology

The 941 is a quarterly federal tax form filed by all employers who have withheld wages. The 941 Form is designed to report Advanced Earned Income tax credit, Federal Withholding, Social Security and Medicare.

The 941

Wage Base
Wage Base is the total amount of employee wages or earnings which a payroll tax is calculated. An employees wage base can be different from his or her total gross wages. If their is an annual wage limit has reached the Social Security wage base limit of $102,000, taxes will not be taken out for the rest of the year.

Tax Tracking Type

The Tax Tracking Type is what QuickBooks uses to populate forms and is chosen in the Payroll Item Setup. Each type will give you summary the effect it has on forms.

Federal Income Tax

Also referred to as Federal Withholding or FIT

Medicare
Also referred to as Medi or Med or MC

Social Security
Also referred to as SS or Social
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The 941
As an Employer
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The Federal law requires you to withhold taxes from your employees paychecks each time they are paid. You are responsible for withholding the Federal income tax, Social Security, and Medicare. These taxes will then be credited to your employees in payment of their tax liabilities. You are also responsible for paying any liability of the employers part of social security and Medicare.

You use the 941 form to report:

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A. Paid wages B. Tips any of your employees have received C. Federal Income Tax withheld by you D. Shares of Social Security and Medicare from both the employee and employer E. Advance Earned Income Credit if any

We will define A - D further in the next few slides

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A through E definitions A. Paid wages

These are the wages any employer pays out to an employee that is taxable by Medicare, Social Security and Federal Income tax, such as:
* Compensation * Reported Tips * SEC 457 Distribution * Non-qual. Plan Distr * Fringe Benefits * Other Moving Expenses * Taxable Grp Trm Life* SCorp Pd Med Premium

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A through E definition continued B. Tips any of your employees have received.

Employees who customarily receive tips are required to report their cash tips to their employers at least monthly, if they receive $20 or more in the month. Cash tips are tips received directly in cash or by check, and charged tips.

You have a liability to withhold and pay Social Security and Medicare tax on your employees' reported tips, to the extent that wages or other employee funds are available. If the employee does not report tips to you, it places you at risk of possible assessment of the employers share of the Social Security and Medicare taxes on the unreported tips.

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A through E definition continued

B. continued If you are a large food or beverage establishment (more than 10 employees on a typical day and food or beverages consumed on the premises), you are required to allocate tips if the total tips reported to you are less than 8% of gross sales. Allocated tips are tips assigned by the company if there is a shortfall between the required 8% of sales and actual tips declared. Report the allocated amount on the employee's W-2 at the end of the year.
Beginning January 01, 2007, IRS is offering a three-year-pilot program, "The Attributed Tip Income Program (ATIP), for food and beverage employers. This reduces industry recordkeeping burdens, has simple enrollment requirements and promotes reporting tips on Federal Income tax returns. This benefits both the employer and employee.

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A through E definition continued

C. Federal Income Tax withheld by you.

In the United States income tax system, employers are required to withhold a portion of each employee's income and pay it directly to the U.S. Internal Revenue Service. This withholding acts as a prepayment of tax they will owe at the end of the year, as well as a direct payment of certain other taxes.

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A through E definition continued

C. continued The amount of a person's federal income tax withholding depends on several factors such as:
the taxpayer's marital status the number of children or dependents the taxpayer has whether or not the taxpayer is an employee IRC 3401 if the taxpayer wants to claim child tax credits if the taxpayer holds two or more jobs if the taxpayer plans to itemize any tax exemptions from withholding that the taxpayer wants to claim any additional amount the taxpayer wants to withhold A taxpayer will get a tax refund if the withholding for the year was greater than the income tax actually owed

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A through E definition continued D. Shares of Social Security and Medicare from both the employee and employer
When you work for an employer, 6.2% of your wages are withheld. Your employer deposits the withholding, along with 6.2% of their matching contribution to the government for the social security programs. In 2008, the employee tax and matching contribution stop after the first $102,000 of wages. In addition if you work for an employer, 1.45% of your wages is withheld and the employer makes a matching 1.45% contribution to the Medicare program, making the total withholdings at 7.65% (6.2% OASDI and 1.45% Medicare). However, all wages are subject to the Medicare tax; there is no ceiling.

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A through E concluded E. Advance Earned Income Credit if any.

The earned income credit is a refundable credit for certain qualified workers. It is intended to help offset some of the increases in living expenses and social security taxes. This credit reduces the amount of tax owed, if any, and may result in a refund to the taxpayer. To qualify, employees are expected to meet other specific requirements, which are explained on Form W-5, Earned Income Credit Advance Payment Certificate, and in more detail in Publication 596, Earned Income Credit.

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941 Line by line defined.

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The 941 Part 1

LINE #1 - Number of Employees What this means

IRS tracks number of employees in the third month of each quarter for the pay period including the 12th day The customer can edit this line, it is mainly for census purposes Do not include household and farm employees, pensioners, and active members of the Armed forces

This is the only number on the 941 form influenced by the pay period

Example:
If Sally Smith took an unpaid vacation during the week of the 12 th and therefore did not receive a paycheck covering that date, they will NOT be included in that total count.
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The 941 Part 1

LINE #2 Wages, Tips, and other compensation What this means
TOTAL paid wages for any given quarter that is taxable by either Federal taxes, Medicare taxes, Social Security taxes or all of them. QuickBooks totals for the quarter all the payroll items that are taxable by any of these three taxes. QuickBooks has the ability to set up any payroll item to be taxed and you determine what taxes will affect it. In the case of the 941 form and what reports in line 2, it would be any payroll items or wages earned that are taxable by SS, Medi and FIT. QB payroll items (additions or deductions or wages) that you create have the option to assign a tax tracking type and it will state in the description if it affects line 2. This means that not only is this item taxable by those taxes but QB will now reflect or track these taxes on any forms that you need them to show up on, IE the 941.

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The 941 Part 1

LINE #3 Total income tax withheld What this means
Enter the federal income tax you withheld (or were required to withhold) from your employees on this quarter's wages, tips, taxable fringe benefits, and supplemental unemployment compensation benefits This number is influenced by the employee set of the marital status and deductions (W-4 Form) Do not include any income tax withheld by a third-party payer of sick pay even if you reported it on Form W-2. You will reconcile this difference on Form W-3. Also include here any excise taxes you were required to withhold on golden parachute payments (section 4999). If you are a third-party payer of sick pay, enter the federal income tax you withheld (or were required to withhold) on third-party sick pay here QuickBooks adds the total for the quarter of the Federal Withholding from the paychecks
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The 941 Part 1

LINE # 4 If no wages, tips and other compensation are subject to Social Security or Medicare. What this means
If any wages, tips or other compensation on are not subject to social security or Medicare tax, check the box and go to line 6
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If this question does not apply to you, leave the box blank

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The 941 Part 1

LINE #5 Taxable social security and Medicare wages and tips. 5A Column 1 Taxable social security wages
QuickBooks pulls 5a column 1 from the wage base of the Social Security minus the wage base tips. Column 2 is a calculated amount.

What this means is that QB is showing you the amount of all

taxable wages, additions, compensation payroll items you have set up in Quickbooks as taxable specifically by Social Security.

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The 941 Part 1

LINE #5 - Taxable social security and Medicare wages and tips. 5B Column 1 Taxable social security tips
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Enter all tips your employees reported to you during the quarter until the total of the tips and wages for an employee reach $102,000. The tax tracking type in Quickbooks would be reported tips so it will show on this line.
Do not include allocated tips on this box. Allocated tips are not reportable on Form 941 and are not subject to withholding of federal income, social security, or Medicare taxes. Allocated tips are tips assigned by the company if there is a shortfall between the required 8% of sales and actual tips declared. Allocated tips have their own box on the W-2 form (Box 8) and must be assigned BEFORE the printing of W-2s. QuickBooks pulls column one from the wage base tips of the Social Security. Column two is a calculated amount.
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The 941 Part 1

LINE #5 - Taxable social security and Medicare wages and tips. 5C Column 1 Taxable Medicare wages and tips
QuickBooks pulls the number for 5c column 1 from the wage base of the Medicare. Column 2 is a calculated amount.

What this means is that QB is showing you the amount of all

taxable wages, additions, compensation payroll items you have set up in QuickBooks as taxable specifically by Medicare. The calculations are done directly on the form using the x.124 and x.029 and not pulled over from the QB company data.

The results of these numbers are what you see in column 2.

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The 941 Part 1

LINE #5 - Taxable social security and Medicare wages and tips LINE #5D Total social security and Medicare taxes
Adds up the social security tax, social security tips tax, and Medicare tax to a total amount. QuickBooks adds column 2 together for boxes 5a, 5b, 5c

LINE #6 Total taxes before adjustments

Add the total federal income tax withheld from wages, tips and other compensation (box 3) and total social security and Medicare taxes before adjustments (box 5d).

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The 941 Part 1

LINE #7 TAX ADJUSTMENTS LINE #7A - Current quarter's fractions of cents
If the difference between your net taxes (Line 10) and our total liability for the quarter (Line 15) is within $1.00, QuickBooks automatically places the adjustment in the Fractions of Cents field (Line 7a). If necessary, you can change this amount by overwriting.

LINE #7B Current quarters sick pay

Enter the adjustment for the employee share of social security and Medicare taxes that were withheld by your third-party sick pay payer. QuickBooks does not fill in any of these numbers; they must be filled in by the user.

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The 941 Part 1

LINE #7 TAX ADJUSTMENTS

Line #7C - Current quarter's adjustments for tips and group-term life insurance.
Enter the adjustment for: any uncollected employee share of social security and Medicare taxes on tips and the uncollected employee share of social security and Medicare taxes on group-term life insurance premiums paid for former employees.

Enter the adjustment for: any uncollected employee share of social security and Medicare taxes on tips and the uncollected employee share of social security and Medicare taxes on group-term life insurance premiums paid for former employees.

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The 941 Part 1

LINE #7 TAX ADJUSTMENTS LINE #7E Prior quarters social security and Medicare taxes
Prior quarter's social security and Medicare taxes. Enter adjustments for prior quarters' social security and Medicare taxes. For example, if you made a mistake when reporting social security and Medicare taxes on previously filed Forms 941, adjust it here. If you need to report both an underpayment and an overpayment, show only the net difference. QuickBooks does not fill in any of these numbers; they must be filled in by the user.

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The 941 Part 1

LINE #7 TAX ADJUSTMENTS LINE #7F Special additions to federal income tax
These boxes are reserved for employers with special circumstances. Use these boxes only if the IRS has sent you a notice instructing you to do so. You must attach Form 941c explaining the tax increase.

LINE #7G Special additions to social security and Medicare

These boxes are reserved for employers with special circumstances. Use these boxes only if the IRS has sent you a notice instructing you to do so. You must attach Form 941c explaining the tax increase.

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The 941 Part 1

LINE #7 TAX ADJUSTMENTS LINE #7H - Special additions to federal income tax and Special additions to social security and Medicare.
These boxes are reserved for employers with special circumstances. Use these boxes only if the IRS has sent you a notice instructing you to do so. You must attach Form 941c explaining the tax increase. Combine all adjustments shown on boxes 7a through 7g and enter the result here.

LINE #8 Total taxes after adjustments

This is the total of all the taxes in line 6 minus or adding any adjustments in the line #7 sections.

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The 941 Part 1

LINE #9 Advanced earned income credit (EIC) payments made to employees
Enter the amount of the advance earned income credit (EIC) payments that you made to your employees. Eligible employees may choose to receive part of the EIC as an advance payment. Those who expect to have a qualifying child must give you a completed Form W-5 stating they expect to qualify for the EIC. Once the employee gives you a signed and completed Form W-5 you must make the advance EIC payments starting with the employee's next wage payment. Advance EIC payments are generally made from withheld federal income tax and employee and employer social security and Medicare taxes.

If the amount of your advance EIC payments is more than your total taxes after adjustments (box 8) for the quarter, you may claim a refund of the overpayment or elect to have a credit applied to your return for the next quarter. This would be a question and answer session they would want to have with their financial advisor.
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The 941 Part 1

LINE #10 Total taxes after adjustment for advance EIC
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This is the total of all the taxes in line 8 minus any Earned Income Credit amounts. This is calculated directly on the form. This number is NOT pulled from QB.

LINE #11 Total Deposits for this quarter, including overpayment applied from prior quarter
Enter your deposits for this quarter, including any deposits that you were required to make to cover prior period liabilities resulting from adjustments shown on box 7. Also include in the amount shown any overpayment from a previous period that you applied to this return. If you need to include a prior quarter's overpayment you will have to right click and override the amount listed to add the overpayment.

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The 941 Part 1

LINE #12 Balance Due
This is the amount that is owed to the IRS as payment and it takes into account all the payments made or credits listed in QuickBooks.

LINE #13 Overpayment

If box 11 is more than box 10, write the difference in box 13.
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Never make an entry in both boxes 12 and 13 If you deposited more than the correct amount for the quarter, you can choose to have the IRS either refund the overpayment or apply it to your next return. Check the appropriate box in box 13. If you do not check either box, we will automatically refund the overpayment. We may apply the overpayment to any past due tax account that is shown in our records under your EIN.

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The 941 Part 2

Line #14
In the spaces provided, write the two-letter U.S. Postal Service abbreviation for the state where you deposit your taxes using Form 8109 or initiate EFTPS transfers

IRS uses the state shown to determine banking days for purposes of deposit due dates. Official state holidays for the state shown are not counted as banking days.
If you deposit in multiple states, enter "MU" in the spaces provided When you deposit in multiple states, IRS cannot determine what portion of your liability was affected by a state holiday and may propose a deposit penalty for one or more of the states where you made deposits

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The 941 Part 2

Line # 15
If box 10 is less than $2,500, check the appropriate box in box 15 and go to Part 3 If you reported $50,000 or less in taxes during the look back period (see below), you are a monthly schedule depositor unless the $100,000 Next-Day Deposit Rule discussed in section 11 of Pub. 15 (Circular E) applies. Check the appropriate box on box 15 and enter your tax liability for each month in the quarter. Add the amounts for each month. Enter the result in the Total liability for quarter box. Note that your total tax liability for the quarter must equal your total taxes shown on box 10. If it does not, your tax deposits and payments may not be counted as timely.

You are a monthly schedule depositor for the calendar year if the amount of your Form 941 taxes reported for the look back period is $50,000 or less. The look back period is the four consecutive quarters ending on June 30 of the prior year. For 2008, the look back period begins July 1, 2006, and ends June 30, 2007.

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The 941 Part 2

LINE #15 Continued
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CAUTION: This is a summary of your monthly tax liability, not a summary of deposits you made. If you do not properly report your liabilities when required or if you are a semiweekly schedule depositor and report your liabilities on box 15 instead of on Schedule B (Form 941), you may be assessed an "averaged" failure-to-deposit (FTD) penalty. If you reported more than $50,000 of taxes for the look back period (see above), you are a semiweekly schedule depositor. Check the appropriate box on box 15. You must complete Schedule B (Form 941) and submit it with your Form 941. Do not use Schedule B (Form 941) if you are a monthly schedule depositor.

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The 941 Part 2

LINE# 15 Continued
Reporting adjustments on box 15. If your tax liability for any month is negative (for example, if you are adjusting an over reported liability in a prior period), do not enter a negative amount for the month. Instead, enter zero for the month and subtract that negative amount from your tax liability for the next month.
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This number is pulled from Quickbooks and not calculated on the form. It is what has actually happened in the company file historically.

QuickBooks adds the total taxes accrued each day on paychecks for Federal Withholding, Medicare Employee, Medicare Company, Social Security Employee and Social Security Company. This is NOT the amount of the tax deposits you've made. This is the amount of tax liabilities accrued.

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The 941 Part 3

LINE #16 If your business has closed or you stopped paying wages
If you go out of business or stop paying wages, you must file a final return To tell the IRS that a particular Form 941 is your final return, check the box on box 16 and enter the date you last paid wages in the space provided

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The 941 Part 3

LINE # 17 Seasonal Employers
If you hire employees seasonally - such as for summer or winter only - check the box on box 17. Checking the box tells IRS not to expect four Forms 941 from you throughout the year because you have not paid wages regularly. Generally, we will not ask about unfilled returns if you file at least one return showing tax due each year. However, you must check the box every time you file a Form 941. Also, when you fill out Form 941, be sure to check the box on top of the form that corresponds to the quarter reported

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The 941 Part 4

May we speak with our third-party designee?
If you want to allow an employee, a paid tax preparer, or another person to discuss your Form 941 with the IRS, check the "Yes" box in Part 4. Then tell us the name, phone number, and the five-digit personal identification number (PIN) of the specific person to speak with - not the firm who prepared your tax return. The designee may choose any five numbers as his or her PIN. By checking "Yes" you authorize the IRS to talk to the person you named (your designee) about any questions we may have while we process your return. You also authorize your designee to: give us any information that is missing from your return, call us for information about processing your return, and respond to certain IRS notices that you have shared with your designee about math errors and return preparation. The IRS will not send notices to your designee.

You are not authorizing your designee to bind you to anything (including additional tax liability) or to otherwise represent you before the IRS. If you want to expand your designee's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.

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The 941 Part 5

Sign here. You MUST fill out both pages of the form and SIGN it.
Complete all information in Part 5 and sign Form 941 as follows. Sole proprietorship The individual who owns the business Corporation (including a limited liability company (LLC) treated as a corporation) The president, vice president or other principal officer Partnership (including an LLC treated as a partnership) or unincorporated organization - A responsible and duly authorized member or officer having knowledge of its affairs Single member LLC treated as a disregarded entity - The owner of the LLC Trust or estate The fiduciary Form 941 may also be signed by a duly authorized agent of the taxpayer if a valid power of attorney has been filed Alternative signature method Corporate officers or duly authorized agents (but not paid preparer's) may sign Form 941 by rubber stamp, mechanical device, or computer software program
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The 941 Part 6

For paid preparers only (Optional)

You may complete Part 6 if you were paid to prepare Form 941 and are not an employee of the filing entity. Sign in the space provided. Give the employer the return to file with the IRS and include a copy of the return for the employer's records. If you are a paid preparer, write your SSN or you Preparer Tax Identification Number (PTIN) in the space provided. Include your complete address. If you work for a firm, write the firm's name and the EIN of the firm. You can apply for a PTIN using Form W-7P, Application for Preparer Tax Identification Number. You cannot use your PTIN in place of the EIN of the tax preparation firm. Do not complete Part 6 if you are filing the return as a reporting agent and have a valid Form 8655, Reporting Agent Authorization, on file with the IRS.

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941 The Schedule B.

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Refer to Example Details for Employer B

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Refer to Example Details for Employer C

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File Schedule B (Form 941) if you are:

941 Schedule B For Semi-weekly and Monthly Depositors

A semiweekly schedule depositor A monthly schedule depositor who accumulated a tax liability of $100,000 or more on any given day in the reporting period. See $100,000 Next-Day Deposit Rule in section 11 of Pub 15 (Circular E) for important details.

Schedule B (Form 941) is divided into the 3 months that make up a quarter of a year. Each month has 31 numbered spaces that ! correspond to the dates of a typical month. Write your tax liabilities in the spaces that correspond to the dates you paid wages to your employees, not the date of the payroll deposits.

Fill in Your Tax Liability by Month

Example A With Corresponding Semi-weekly deposits

Employer A is a semiweekly schedule depositor who pays wages for each month on the last day of the month. On December 22,2006, Employer A also paid its employees year-end bonuses subject to employment taxes). Because Employer A must record employment tax liabilities on the Schedule B (Form 941). For the 4th quarter (Oct, Nov, Dec), Employer A should report tax liability in this way Month Lines for dates wages were paid 1 (October) line 31 (pay day, last day of the month) 2 (November) line 30 (pay day, last day of the month) 3 (December) lines 22 (bonus paid) + 31 (pay day)
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For Semi-weekly and Monthly Depositors cont

941 Schedule B

Example B Corresponding semi-weekly deposits

Employer B is a semiweekly schedule depositor who pays employees ever other Friday. Employer B accumulated a $20,000 employment tax liability on each of these pay dates: 1/13/06, 1/27/06, 2/10/06, 2/24/06, 3/10/06 and 3/24/06. Employer B is a semiweekly schedule depositor, Employer B must record the tax liabilities on the Schedule B in this way: Month 1 January 2 February 3 March Lines for dates wages were paid Lines 13 and 27 Lines 10 and 24 Lines 10 and 24

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For Semi-weekly and Monthly Depositors cont Example C

941 Schedule B

Employer C is a new business and monthly schedule depositor for 2006. Employer C pays wages every Friday and has accumulated a $2,000 employment tax liability on 1/13/06 and a $110,000 liability on 1/26/06 and on ever subsequent Friday during 2006. Under the deposit rules, employers become semiweekly schedule depositors on the day after any day they accumulate $100,000 or more of tax liability in a deposit period.
Because Employer C accumulated $112,000 on 1/20/06, Employer C became a semiweekly schedule depositor on the next day and must complete scheduled B(941) and file it with the 941 form. Employer C should record tax liabilities this way:

Month

Dates wages were paid

Amount to record

1 Jan Line 13 $2,000 1 Jan Line 20, 27 $110,000 2 Feb Line 3, 10, 17, 24 $110,000 3 Mar Line 3, 10, 17, 24 $110,000 On Schedule B (Form 941), you must take into account adjustments to correct errors on prior period returns. See lines 4 and 9
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The Relationships of Federal Forms.

What areas on the 940, 941 and W3s should match and why?

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Form Data Comparison

Quarterly 941 The 941 only reports quarterly data for the company

Annual W3 The W3 reports annual data for the company

Annual 940 The 940 reports annual data however it does not relate to either the W3 or the 941 on any line.

The 941 line 2 will match the W3 line 1 The 941 line 3 will match the W3 line 2 The 941 line 5a column 2 will match the W3 line 4 The 941 line 5c column 2 will match the W3 line 6 The 941 line 5b column 1 will match the W3 line 7

The W3 line 1 will match the 941 line 2 The W3 line 2 will match the 941 line 3 The W3 line 4 will match the 941 line 5a column 2 The W3 line 6 will match the 941 line 5c column 2 The W3 line 7 will match the 941 line 5b column 1

The 940 is specific in the data that it reports to the IRS

It reports:

Gross wages paid to all employees total unemployment

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